Marks & Spencer Plc v Revenue and Customs Commissioners (No 2)
| Jurisdiction | England & Wales |
| Judge | Lord Clarke,Lord Carnwath,Lord Neuberger,Lord Mance,Lord Reed |
| Judgment Date | 19 February 2014 |
| Neutral Citation | [2014] UKSC 11 |
| Date | 19 February 2014 |
| Court | Supreme Court |
[2014] UKSC 11
Lord Neuberger, President
Lord Mance
Lord Clarke
Lord Reed
Lord Carnwath
Appellant
David Milne QC
Nicola Shaw QC
(Instructed by Joseph Hage Aaronson LLP)
Respondent
David Ewart QC
Sarah Ford
(Instructed by HMRC Solicitors Office)
Appellant
David Ewart QC
Sarah Ford
(Instructed by HMRC Solicitors Office)
Respondent
David Milne QC
Nicola Shaw QC
(Instructed by Joseph Hage Aaronson LLP)
Heard on 25 and 26 November 2013
Lord Clarke (with whom Lord Neuberger, Lord Mance, Lord Reed and Lord Carnwath agree)
This is another round in a long drawn out saga between HMRC and Marks and Spencer plc ("M&S"). It was last before the Supreme Court on 22 May 2013 when Lord Hope gave judgment on the first of five issues. Only Lord Hope gave a judgment. The other members of the Court, namely Lord Neuberger, Lord Mance, Lord Reed and Lord Carnwath simply agreed with Lord Hope. I have, as it were, replaced Lord Hope, who has now retired.
For the purposes of corporation tax, M&S claims group relief in respect of losses sustained by two of their subsidiaries, namely Marks & Spencer (Deutschland) GmbH ("MSD"), which was resident in Germany and Marks & Spencer (Belgium) NV ("MSB"), which was resident in Belgium. As Lord Hope observed at para 1 of his judgment, the claims were originally made and refused by HMRC over ten years ago and raise questions about the availability of cross-border group relief and the method of quantifying such relief as is available which, despite having been the subject of nine separate hearings since the case was first considered in December 2002, have still not yet been resolved. This is thus the tenth such hearing. As will be seen, one of the striking features of the various hearings is the number of distinguished tax lawyers who have taken part. As to the losses in respect of which relief is sought, the earliest losses relied upon extend back to 1997 in the case of MSD and back to 1998 in the case of MSB.
The five issues were summarised by Moses LJ in the Court of Appeal when (as appears below) the dispute came to the Court of Appeal for the second time. He summarised them thus at [2012] STC 231, para 4:
"(i) Is the test that the ECJ established to identify those circumstances in which it would be unlawful to preclude cross-border relief for losses, the 'no possibilities' test, to be applied (as the Revenue contend) at the end of the accounting period in which the losses crystallised rather than (as M&S contends) the date of claim? This question involves deciding whether the Court of Appeal in the first appeal reached a binding decision on that issue and whether it remains binding on this court in light of subsequent decisions of the ECJ.
(ii) Can sequential/cumulative claims be made (as M&S contends) by the same company for the same losses of the same surrendering company in respect of the same accounting period? The Revenue assert that that is not a question decided by the Court of Appeal and is precluded both by UK fiscal rules and by the underlying jurisprudence of the ECJ.
(iii) If a surrendering company has some losses which it has or can utilise and others which it cannot, does the no possibilities test (as the Revenue contend) preclude transfer of that proportion of the losses which it has no possibility of using?
(iv) Does the principle of effectiveness require M&S to be allowed to make fresh 'pay and file' claims now that the ECJ has identified the circumstances in which losses may be transferred cross-border, when at the time M&S made those claims there was no means of foreseeing the test established by the court?
(v) What is the correct method of calculating the losses available to be transferred?"
As Lord Hope observed in para 10, those issues have been restated in a slightly amended form in the statement of facts and issues prepared for the appeals to this Court. I will return to the facts and issues as so formulated so far as necessary below.
The reference to the 'no possibilities test' established by the ECJ is a reference to the decision of the ECJ in a ruling in a judgment of 13 December 2005 in Case C-446/03, Marks & Spencer plc v Halsey [2006] Ch 184, [2005] ECR I-10837. In order to be able to follow the thinking of the Court of Appeal and of this Court it is necessary to say something about the history and background which I can take largely from paras 2 to 14 of the judgment of Lord Hope.
M&S began to expand its business into other countries in 1975. By the end of the 1990s it had sales outlets in more than 34 countries, with a network of subsidiaries and franchises. But by that date it had already begun to incur losses, and in March 2001 decided to withdraw from its continental European activity. It was able to sell its French and Spanish subsidiaries to third parties, but no purchasers could be found for MSD or MSB. MSD ceased trading in August 2001 and was dissolved following liquidation on 14 December 2007. MSB ceased trading on 22 December 2001 and was dissolved following liquidation on 27 December 2007.
The first group relief claims were made between 2000 and 2003 at a time when neither subsidiary was in liquidation. They concerned MSG's losses for the years 1998 to 2001 and MSB's losses for the years 2001 and 2002. Claims in respect of the same losses by the same companies for the same years were made on three subsequent occasions in response to what (as Lord Hope put it) M&S described as factual and jurisprudential developments: on 20 March 2007, when both companies were in liquidation; on 12 December 2007, just before the companies were dissolved; and on 11 June 2008, in respect of MSB following the dissolution of that company. The claims for the years from 2000 onwards were governed by the self-assessment rules in Schedule 18 to the Finance Act 1998 and (it is now agreed) were within the statutory time limits, to which I will return below. HMRC maintain that the claims for years prior to 2000, which were governed by the corporation tax pay and file rules in Schedule 17A to the Income and Corporation Taxes Act (" ICTA") 1988, were out of time when they were included in the claims that were made on the three occasions subsequent to the making of the first claims between 2000 and 2003.
As Lord Hope observed at para 5, M&S's basic contention underlying all these claims was that the provisions in United Kingdom legislation which restricted group relief claims to losses of UK resident companies and, after the Finance Act 2000, losses of UK branches of non-resident companies were contrary to article 43 EC (now article 49 TFEU) on the freedom of establishment, and were thus unlawful. On I7 December 2002 the special commissioners, who were Dr John Avery-Jones and Mr Malcolm Gammie QC, held that there had been no breach of that article: Marks & Spencer plc v Halsey [2003] STC (SCD) 70. On appeal, Park J decided to refer the matter to the ECJ: [2003] EWHC 1945 (Ch). He sought a preliminary ruling on two questions, namely (1) the compatibility of the UK provisions with article 43 EC and (2) what difference the facts of M&S's case might make to the answer to the first question.
As stated above, the ECJ gave its ruling in its judgment of 13 December 2005. It ruled that the answer to the first question was that article 43 EC did not preclude provisions of a member state which prevented a resident parent company from claiming group relief for losses incurred by a subsidiary established in another member state. The restriction was justified by three grounds when taken together, namely (1) preserving the balanced allocation of the power to impose taxes between member states; (2) preventing losses being taken into account twice in different member states; and (3) preventing the risk of tax avoidance if the taxpayer were to be free to choose the member state in which to claim relief: paras 41–51. In particular, at para 51 it was said that in principle such restrictive provisions pursue legitimate objectives which are compatible with the Treaty and constitute overriding objectives in the public interest and that they are apt to ensure the attainment of those objectives. However the Court noted in effect at para 53 that, in order to be lawful, the measures must not go beyond what is necessary to attain the objectives pursued. In short the measures must be proportionate.
For present purposes the critical paragraphs are paras 55 and 56:
"55. In that regard, the court considers that the restrictive measure at issue in the main proceedings goes beyond what is necessary to attain the essential part of the objectives pursued where:
(i) the non-resident subsidiary has exhausted the possibilities available in its state of residence of having the losses taken into account for the accounting period concerned by the claim for relief and also for previous accounting periods, if necessary by transferring those losses to a third party or by offsetting the losses against the profits made by the subsidiary in previous periods, and
(ii) there is no possibility for the foreign subsidiary's losses to be taken into account in its State of residence for future periods either by the subsidiary itself or by a third party, in particular where the subsidiary has been sold to that third party.
56. Where, in one member state, the resident parent company demonstrates to the tax authorities that those conditions are fulfilled, it is contrary to articles 43 EC and 48 EC to preclude the possibility for the parent company to...
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...amount. (Case C-446/03) [2006] BTC 318 (Case C-607/17) [2019] BTC 32 (Case C-608/17) [2019] BTC 33 R & C Commrs v Marks and Spencer plc [2014] BTC 7 Accepted that the word “not” should not occur. Eg Paragraphs 2 and 3 of her Opinion in EC Commission v United Kingdom (Case C-172/13) [2015] B......
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...period or the date on which the claim was filed. In respect of this issue, the Appellant relies upon R & C Commrs v Marks and Spencer plc [2014] BTC 7 which they say is decisive in respect of claims for periods prior to the coming into force of the Finance Act 2006. The Respondents preferre......
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Case Notes
...plc and Commiss ioners for HMRC v. Marks & Spe ncer, Judgments of 22May 2013 [2013] UKSC 30, [2013] STC 1262 and of 19February 2 014 [2014] UKSC 11, [2014] STC 819.14 See alrea dy A. Cordewener, ‘Cross-Border Loss Rel ief and the “E et Utile” of EU Law: Are We Losing It?’, 21 EC Tax Revi......